- EUR/USD fell back below 1.0400 amid tepid market flows.
- The New Year midweek holiday will further limit numbers.
- A thin data schedule this week puts Fiber hopes on hold.
EUR/USD walked it lower on Monday, falling back below the 1.0400 handle as markets continue to churn through the year-end holiday season. The broader market's volume has been crushed and investors are finding little reason to push assets too far in either direction, but a fresh bout of cooling risk appetite has most asset baskets bring back to the low side of near-term density.
German equity markets will be closed on Tuesday and Wednesday for the New Year and New Year's Day holidays, respectively. Germany's HCOB Manufacturing Purchasing Managers' Index (PMI) final figures are expected on Thursday, but the preliminary figures are unlikely to inspire much movement in the Euro. German labor figures, including the monthly Unemployment Change for December which is expected to tick to 15K from 7K, are due on Friday.
The main data print this week is the December US ISM PMI figures, which are also expected on Friday. The December US ISM Manufacturing PMI is expected to tick down to 48.3 from 48.4. A number of Federal Reserve (Fed) policymakers are also expected to appear during the back half of the week as Fed spokesmen attempt to move over the Fed's pivot from recently into lower-than-expected projections for the number of rate cuts expected in 2024.
EUR/USD price forecast
With EUR/USD fighting back to the low side of 1.0400, the key figure will immediately become the recent price floor near 1.0350. Price action has moved steadily into the lower end after the Fiber retreated from the September highs just north of 1.1200.
Despite avoiding any new levels below the mid-November low of 1.0332, EUR/USD remains on pace to close in the red for a fifth consecutive week, and traders looking on the longer timetables note that the Fiber has shut down for all but two. of the 13 consecutive weeks.
EUR/USD daily chart
The Euro FAQ
The Euro is the currency for the 19 countries in the European Union that belong to the Eurozone. It is the second most traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of foreign exchange transactions, with an average daily turnover of more than $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for around 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means either controlling inflation or stimulating growth. A key mechanism is to raise or lower interest rates. High interest rates – or the prospect of higher rates – usually benefit the Euro and vice versa. The Governing Council of the ECB makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of national banks of the Eurozone and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important economy for the Euro. If inflation rises higher than expected, especially if it is above the ECB's 2% target, the ECB is obliged to raise interest rates to bring it back under control. High interest rates compared to their peers usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the Euro. Indicators such as GDP, Manufacturing and Services PMI, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it could encourage the ECB to raise interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly important, as they make up 75% of the Eurozone economy.
Another important data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a certain period. If a country exports goods that are in high demand, its currency will gain value only from the additional demand that comes from foreign buyers who want to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: https://www.fxstreet.com/news/eur-usd-falls-again-as-holiday-markets-coil-202412301730
